"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost

Sunday, January 29, 2017

Brocade Communications Special Meeting (2017)

Brocade Communications (BRCD) held a special meeting at the Santa Clara Hyatt on January 26, 2017 to approve a merger. The hotel offered pastries, a fruit platter, and beverages, including mineral and flat water. After the formal portion of the meeting, Brocade didn't bother opening the floor to any shareholders until I asked why they weren't soliciting feedback or questions. Apparently, Brocade believes that special meetings aren't appropriate venues for shareholder questions, but deigned to include them after my request. You may be wondering, "Why bother having shareholders attend if you won't answer questions from them?" Such a question assumes a minimum IQ and an ability to understand logic, two items we'll see might not actually exist in Brocade's corporate repertoire.

My question was about privacy and security vulnerabilities in Brocade's technology. With the NSA's activities becoming well-known post-Snowden (see Citizenfour for more details), I asked whether Brocade allowed backdoors in its products or had been solicited by the NSA to do so. Brocade appeared startled by the question and told me they couldn't answer it. I replied, "So you can neither deny nor confirm the existence of backdoors in any of your products?" Brocade, smart enough to realize the trap I'd laid, still wasn't courageous enough to answer the question, gave a convoluted answer and basically said it wasn't the type of question appropriate at the special meeting. (Because something like privacy vulnerabilities couldn't possibly be relevant to a merger or its price, right?) I walked out, saying, "There's no leadership here."

Two men affiliated with the company approached me after the meeting and asked if I really expected the company to answer questions that might jeopardize the merger. "Today is precisely the time that such questions are relevant, because shareholders and lawyers on both sides deserve to have full information before approving or voting on the merger," I said. Meanwhile, I was thinking, "Why is it my problem if the teams' lawyers didn't do their due diligence properly? Why am I bound by their limited scope?"

I repeated my insistence that corporate America as well as the country at large was diminishing because of a lack of leadership and integrity. I'm willing to bet each of the directors or executives silently sitting at the table during my questions had undergraduate or graduate degrees from schools that advertise they're creating leaders. I recalled one of my favorite scenes from Scent of a Woman: "'Cradle of leadership.' Well, when the bow breaks, the cradle will fall. And it has fallen here, it has fallen!"

Brocade's refusal to answer my questions was steeped in no law--only cowardice. Once the formal portion of the meeting concludes, the informal part isn't necessarily regulated by specific laws other than what the company decides or what is presented in the notice. The company should of course be consistent from year to year to avoid being accused of discrimination or other issues, but with respect to the informal portion of the meeting, I know of no "Brown Act" equivalent that limits questions. At other shareholder meetings, I've seen people ask questions about CEO's personal lives and even sing "Happy birthday" to one. And yet, here I was, being told by Brocade that they couldn't answer my questions, because questions about the company's technology weren't within the scope of the special meeting's purpose.

Let me repeat that--from what I understand, Brocade refused to answer shareholder questions on its own technology's vulnerabilities because it didn't believe that such information was relevant to the merger price or merger agreement.

The first page of Brocade's December, 20, 2016 "Notice of Special Meeting of Stockholders" states, "We are holding the meeting for the following purposes... To transact any other business that may properly come before the special meeting, or any adjournment or postponement of the special meeting, by or at the direction of the board of directors of the Company." [Emphasis added.] Who signed the statement? Ellen A. O'Donnell, Senior Vice President, General Counsel and Corporate Secretary.

Who refused to answer my questions because she felt they weren't appropriate for the special meeting? It appeared to be Ellen A. O' Donnell, Esq., graduate of Stanford University and Loyola Law School.

That's not even the best part. Brocade's own 10K from 2015 states, "Customers have become increasingly sensitive to government-sponsored surveillance and may believe that, as a U.S.-based manufacturer, Brocade’s equipment contains 'backdoor' code that would allow customer data to be compromised by either governmental bodies or other third parties. As a result, customers may choose not to deploy Brocade networking products, which could negatively impact Brocade’s business and financial results." Note the language above doesn't admit or deny the existence of backdoors--it just states that customers might believe they exist.

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